By: Grayson T. Orsini
In response to the COVID-19 pandemic, breweries and distilleries are beginning to make WHO-approved hand sanitizer from ethanol, a type of alcohol already used in the distilling process.
To support these efforts, Congress included special tax breaks for brewers and distillers in the CARES Act. Under section 2308 of the CARES Act, alcohol produced for or contained in hand sanitizer is exempt from excise taxes if it is "produced and distributed in a manner consistent with FDA guidelines," and is related to the COVID-19 outbreak.
This hand sanitizer is also not subject to labeling and marketing requirements found in sections 105 and 106 of the Federal Alcohol Administration Act, and section 204 of the Alcoholic Beverage Labelling Act.
What is “consistent with FDA guidance” is controversial. FDA guidelines call for hand sanitizer to be made with denatured alcohol, a bitter type of alcohol added to deter human consumption.
Industry leaders are currently pressuring the FDA to relax their guidelines so more brewers and distillers could produce ethanol-based hand sanitizer. The FDA has relaxed some guidelines, but still requires denatured alcohol to be added to all hand sanitizers.
In sum, breweries and distilleries should keep in mind that they must follow FDA guidelines to receive an excise tax exemption under the CARES Act. This currently means that distillers must add denatured alcohol to their product. This rule may change. Congress and industry leaders continue to pressure the FDA to relax its rules. Wolcott Rivers Gates will continue to watch this issue for our clients with an interest in the alcohol industry.